Unit 3

Policy Regimes

Q1) How the first five-year plan was formulated?

A1) At the time of the First Five-Year Plan (1951-56), India was faced with three problems – influx of refugees, severe food shortage and mounting inflation. India had also to correct the disequilibrium in the economy caused by the Second World War and the partition of the country.

Accordingly, the First Plan emphasized, as its immediate objectives, the rehabilitation of refugees, rapid agricultural devel­opment so as to achieve food self-sufficiency in the shortest possible time and control of inflation. Simultaneously, the First Plan attempted a process of all-around balanced development which could ensure a rising national income and steady improvement in the living standards of the people over a period of time (Datt and Sundharam, 2000).

The First Five-Year Plan prepared the way for achieving the socialistic pattern of society – an economic and social order based upon the values of freedom and democracy without class, caste and privilege in which there will be a substantial rise in employment and production and largest measure of social justice attainable.

The importance of agricultural production was sought and therefore, out of total outlay of Rs 1,493 crores in the first part of the five-year plan, Rs 191.69 crores and Rs 450.36 crores were allotted for agricultural and rural development, and irrigation and power sector, respectively, together which constituted 43 per cent (12.8 + 30.2) of the total outlay.

The economy has responded well to the stimulus of the first plan. Both agricultural and industrial production has awarded substantial increases. Prices have attained a reasonable level. The country’s accounts are virtually in balance. The important targets prepared in the first plan have been realized, and some of them in fact, been exceeded.

Some seventeen million acres of land have been brought under irrigation in these five-year plans, and the installed capacity for generation of power has been increased from 2.3 million KW to 3.4 million KW. Considerable progress has been done with the rehabili­tation of railways. A large number of industrial plants both in the public and private sectors have gone into production.

Against this backdrop the principal objectives of the Second Five-Year Plan were to secure a more rapid growth of the national economy and to increase the country’s productive potential in a way that will make possible accelerated development in the succeeding plan periods.

Q2) Explain Second Five-year plan.

A2) Unlike First Five-Year Plan, in the Second Five-Year Plan there was a clear enunciation of a strategy of development by Indian planners. Prof P.C. Mahalanobis, the architect of the Second Five-Year Plan was responsible for introducing a clear strategy of development based on the Russian experience. This strategy emphasized investment in heavy industry to achieve industrialization which was assumed to be the basic condition for rapid economic development.

Nehru stated, “If we are to industrialize, it is of primary importance that we must have the heavy industries which build machines” (Nehru, 1960). Further he said “There are some who argue that we must not go in for heavy industry but for lighter ones. Of course, we have to have lighter industries also but it is not possible to industri­alize the nation rapidly without concentrating on the basic industries which produce industrial machines which are utilized in industrial development” (Government of India, 1961, Problems in Third Plan: A Critical Miscellany).

According to the plan frame “In the long run the role of industri­alization and the growth of national economy would depend upon the increasing production of coal, electricity, iron and steel, heavy machinery, heavy chemicals and heavy industries generally – which would increase the capacity for capital formation. One important aim is to make India independent as quickly as possible of foreign imports of producer goods as that the accumulation of capital would not be hampered by difficulties in securing supplies of essential producer goods from other countries. The heavy industry must, therefore, be expanded with all possible speed” (Government of India, 1956, Second Five-Year Plan – The Framework).

Q3) How the Second Five-Year Plan (1956-61) was formulated?

A3) The Second Five-Year Plan (1956-61) was formulated with reference to the following objectives:

(a) A sizable increase in national income so as to raise the level of living in the country;

(b) Rapid indus­trialization with particular emphasis on the development of basic and heavy industries;

(c) A large expansion of employment opportunities; and

(d) Reduction of inequalities in income and wealth, and a more even distribution of economic power (Government of India, 1956, Second Five-Year Plan).

The plan emphasized the socialistic pattern of society. It says “major decisions regarding production, distribution and consumption and investment and in fact, the entire pattern of socio-economic relationships must be made by agencies informed by social purpose. The benefits of economic development must accrue more and more to the relatively less privileged classes of society, and there should be a progressive reduction of the concentration of income, wealth and economic power. The state has to take on heavy responsibilities as the principal agency speaking for and acting on behalf of the community as a whole. The public sector has to play its part within the framework of the comprehensive plan accepted by the community”.

Q4) How the third five-year plan was formulated?

A4) By the beginning of the Third Plan (1961-66) the Indian planners felt that the Indian economy had entered the “take off stage” and that the first two plans had generated an institutional structure needed for rapid economic development. Consequently, the Third Plan set as its goal the establishment of a self-reliant and self-generating economy. But the working of the Second Plan had also shown that the rate of growth of agricultural production was the main limiting factor in India’s economic development.

The experience of the first two plans suggested that agriculture should be assigned top priority. The Third Plan, therefore, gave top priority to agriculture but it also laid adequate emphasis on the development of basic industries, which were vitally necessary for rapid economic development of the country. However, between the India’s conflict with China in 1962 and with Pakistan in 1965, the approach of the Third Plan was later shifted from development to defence and development (Datt and Sundharam, 2000).

In 1960-67, following a severe drought, national income regis­tered only nominal increase of 0.9 per cent. However, the record harvest of 1967-68, marking a significant increase in agricultural output, was instrumental in raising national income by 9 per cent in that year (Hantal, 1996).

The slow rate of growth in agricultural production not only depressed the rate of growth of the economy but also led to an alarming dependence on imports food-grains and other agricultural commodities. During the Third Plan, the country imported 25 million tons of food grains, 3.9 million bales of cotton and 1.5 million rates of jute. Similarly, industrial production was also slowed down. The index of industrial production (base 1960-100) increased by only 1.7 per cent in 1966-67 and there was hardly any growth (0.3%) in 1967-68.

This sharp deceleration was accompanied by an increased in unutilized capacity in a number of industries. Many factors constituted to it: decline in purchasing power because of the setback on the agricul­tural front; stagnation in investment; shortage of foreign exchange because of the need for abnormal high import of food-grains and raw materials and for completion of number of projects started earlier.

As a result of several measures taken by the government – such as import liberalization following devaluation, decontrol of certain commodities like steel, coal, paper, fertilizers and commercial vehicles, delicensing of a number of industries, some increase in the public sector demand for domestic manufactures and a rise in the export of engineering goods; an all-round industrial economy began in January 1968 and resulted in increase of 6.2 per cent in industrial production in 1968-69 (Government of India, 1969, Fourth Five-Year Plan).

Hence, the process of liberalization policy in India began, though very slowly, during this period (Hantal, 1996).

Q5) How the fourth five-year plan was formulated?

A5) The original draft outline of the Fourth Plan prepared in 1966 under the stewardship of Ashok Mehta had to be abandoned on account of the pressure exerted on the economy by two years of drought, devaluation of rupee and the inflationary recession. Instead, three Annual Plans (1966-69) euphemistically described as “Plan Holidays” were implemented (Datt and Sundharam, 2000).

The Fourth Plan (1969-74) aimed at acceleration of the tempo of development in conditions of stability and reduced uncertainties. It set before itself the two principal objectives “growth with stability” and “progressive achievement of self-reliance”. It aimed at average 5.5 per cent of growth in the national income and the provision of national minimum for the weaker section of the community – the latter came to be known as the objectives of “growth with justice” and “Garibi Hatao” (removal of poverty).

It was proposed to introduce safeguards against the fluctuations of agricultural production as well as the uncertainties of foreign aid in the period of the Fourth Plan. It proposed to reduce the dependency of foreign aids. It was planned to do away with concessional imports of food-grains under PL 480 by 1971.

In the process of development there was inevitably an increase in concentration of economic power. The government has, therefore, formulated the new licensing policy to control and regulate the concentration of economic power. While continuing with efforts in intensive irrigated agriculture and basic modern industry, it proposed to pay special attention to certain fields of productive activity particu­larly in agriculture and related primarily production which had been relatively neglected.

It proposed to chart the course of industrial development so as to provide for future technological advance and at the same time to bring about dispersal of industrial activity and enter­prise. The plan proposed detail action through regional and local planning to help the very large numbers of the smaller and weaker producers and increase immediate employment and future employment potential.

It suggested steps to even out supplies of food-grains and to stabilize prices through buffer stocks and through operation by public agencies in certain sensitive trading areas.

It looked to the monopoly legislation and appropriate fiscal policy to reduce concentration of economic power. It expected that the nationalization of banking would help in this and also contribute towards diffusion of enterprise and strengthening of weak producing units. It proposed utilization of Panchayati Raj Institution (PRI) in local planning and the gradual building up of an integrated cooper­ative structure for establishing social and economic democracy particularly in the countryside.

It suggested reorganization of the management of public enterprises to achieve the twin aims of a strong well-knit public sector and the autonomous operation of responsible units. It emphasized the need for encouraging operation and decen­tralized decision-making for the private sector – small and large, within this overall frame. Last but not the least, it called for a more even distribution of benefits, a fuller life for an increasing large number of people, and building up a strong integrated democratic nation (Hantal, 1996).

Q6) How the Fifth Five-Year Plan was formulated?

A6) The Draft Fifth Five-Year Plan was formulated in terms of 1972-73 prices and in the context of the economic situation obtaining in the first half of the fiscal year 1973-74. Thereafter, two major devel­opments took place. The inflationary pressure gathered momentum till September 1974; and the balance of payment position worsened due to the steep rise in the prices of imported oil and other materials (Government of India, 1973, Draft Fifth Five-Year Plan).

It was, therefore, designed mainly to control inflation and increase production particularly in the key sectors. The plan outlay had to be kept at a modest level. Yet care was taken to ensure adequate provisions for agriculture including irrigation and fertil­izers, energy (power, coal and oil), ongoing payment in steel, non-ferrous metals and certain basic consumer goods industries. Emphasis was on fuller utilization of the unutilized capacities. The provision for social services was restrained but kept at a reasonable level.

After having succeeded in containing inflationary tendencies and giving the economic situation a promising turn, the objectives laid down in this plan were: removal of poverty and achievement of self-reliance. The strategies related to growth in the three leading sectors, viz., agriculture, energy and critical intermediates and the creation of additional employment opportunities.

The 20-point Economic Programme announced by the Prime Minister on 1st July 1975; the various constituents of the 20-point economic programme especially those which require financial investment, have been identified. Priority has been accorded to the implementation of the schemes falling under this programme (Government of India, 1973, Fifth Five-Year Plan).

The Fifth Plan also permitted foreign capital participation where the technological gap could not be filled by indigenous technology. However, such participation was normally not expected to exceed 40 per cent (Government of India, 1973, Draft Fifth Five-Year Plan).

Q7) What were the sixth plans?

A7) There were two Sixth Plans. The Janata Party’s Sixth Plan (1978-83) sought to reconcile the objectives of higher production with those of greater employment so that people living below the poverty line could benefit there from. The focus of the Janata’s Sixth Five-Year Plan was enlargement of the employment potential in agriculture and allied activities, encouragement to household and small industries producing consumer goods for mass consumption and to raise the incomes of the lowest income classes through a minimum needs programme.

When the Sixth Plan (1980-85) was introduced by the Congress, the planners rejected the Janata approach and brought back Nehru model of growth by aiming at a direct attack on the problem of poverty by creating conditions of an expanding economy.

The gradual process of liberal economic policy was followed in Sixth Five-Year Plan to maintain growth with stability. It, therefore, called for flexible licensing policy for private participation in the capital formation (Government of India, 1980, Sixth Five-Year Plan). Though the key industries remained under the control of public sector, a little openness gradually started in country.

Q8) What are the policies of Sixth Plan?

A8) The Sixth Plan policies stated attentions in following areas:

(a) Removing the disadvantages, which exports suffer because of restrictions on imports.

(b) Removing obstacles to the expansion of capacity for exports.

(c) Streamlining the existing cash compensation and other schemes intended to remove the disadvantages suffered by exports on account of taxation and physical controls operating in the economy.

(d) Ensuring that government intervention in the foreign trade policies is such as not to discriminate against exports and production for exports, there is a case for making exporting marginally more profitable than import substitution, in view of the need to diversify export trade which involves capturing new markets abroad and retaining them; and

(e) Maintaining adequate links with technological development abroad so that our export capability is not hurt by outdated technology.

Q9) How the seventh five-year plan was formulated?

A9) It the Seventh Plan the liberal economic policy was more encouraged. It says, “in addition to the programme of public sector investment, the plan must contain a set of policies designed to bring about the desired pattern of investment in the private sector. Other policies lead supportive of the plan will be those which lead to efficiency and economy in resource use in both the public and the private sector. Thus, the success of the plan would depend among others on the choice of the Current Policy Framework” (Government of India, 1985, Seventh Five-Year Plan: 68). The Seventh Plan stated that a strenuous effort at non-planned expenditure control was required. Arguing that many of the subsidies are not beneficial to the poor, it called that the subsidy burden must be kept down to a reasonable level.

It justified the need of introducing the principle of ‘zero-based budgeting’ which according to the plan could be applied to non-developmental expenditure as well as developmental expen­diture. This would make possible for redevelopment of personnel, thereby cutting down new recruitment.

The Seventh Plan also argued that because of the development of economy and the industrial structure which were becoming more and more diversified and complicated, the licensing mechanism and other physical controls became more difficult to operate. Hence, it considered it is necessary to reduce the regular and range of physical controls and plan greater reliance on financial controls which would give signals but would not involve inefficiency and delays.

Q10) What is Import Substitution Industrialisation?

A10) Import substitution industrialization (ISI) is a theory of economics typically adhered to by developing countries or emerging market nations that seek to decrease their dependence on developed countries. The approach targets the protection and incubation of newly formed domestic industries to fully develop sectors so that the goods produced are competitive with imported goods. Under ISI theory, the process makes local economies, and their nations, self-sufficient.

The primary goal of the implemented substitution industrialization theory is to protect, strengthen, and grow local industries using a variety of tactics, including tariffs, import quotas, and subsidized government loans. Countries implementing this theory attempt to shore up production channels for each stage of a product's development. 

ISI runs directly counter to the comparative advantage concept that occurs when countries specialize in producing goods at a lower opportunity cost and export them.

Q11) Explain the History of Import Substitution Industrialization (ISI) Theory.

A11) ISI refers to the development economics policies of the 20th century. However, the theory itself has been advocated since the 18th century and was supported by economists such as Alexander Hamilton and Friedrich List.

Countries initially implemented ISI policies in the global south (Latin America, Africa, and parts of Asia), where the intention was to develop self-sufficiency by creating an internal market within each country. The success of ISI policies was facilitated by subsidizing prominent industries, such as power generation and agriculture, and encouraging nationalization and protectionist trade policies.

Nevertheless, developing countries slowly began to reject ISI in the 1980s and 1990s after the rise of global market-driven liberalization, a concept based on the International Monetary Fund and the World Bank's structural adjustment programs.

Q12) Explain the Theory of Import Substitution Industrialization (ISI).

A12) ISI theory is based on a group of developmental policies. The foundation for this theory is composed of the infant industry argument, the Singer-Prebisch thesis, and Keynesian economics. From these economic perspectives, a group of practices can be derived: a working industrial policy that subsidizes and organizes the production of strategic substitutes, barriers to trade such as tariffs, an overvalued currency that aids manufacturers in importing goods, and a lack of support for foreign direct investment.

Related to and intertwined with ISI is the school of structuralist economics. Conceptualized in the works of idealistic economists and financial professionals such as Hans Singer, Celso Furtado, and Octavio Paz, this school emphasizes the importance of taking into account structural features of a country or a society in economic analysis. That is, political, social, and other institutional factors.

A critical feature is the dependent relationship that emerging countries often have with developed nations. Structuralist economics theories further gained prominence through the United Nations Economic Commission for Latin America (ECLA or CEPAL, its acronym in Spanish). In fact, Latin American structuralism has become a synonym for the era of ISI that flourished in various Latin American countries from the 1950s to the 1980s.

Q13) Explain the Shortcomings and critiques of ISI.

A13) By the 1960s, ISI strategies were seen to have significant drawbacks. Although results varied from country to country, general trends included production that often did not extend into industries other than consumer goods, slow employment growth, agricultural-sector decline, and minimal productivity growth. Social strife also emerged and was seen in part as resulting from increased internal migration and greater inequality. Although large countries such as Brazil and Mexico produced at least short-term growth with ISI policies, smaller countries, including Ecuador and Honduras, were less successful.

Critics within Latin America, particularly at the Comisión Económica para América Latina (Economic Commission for Latin America) and the University of Chile in Santiago, condemned ISI’s dependence on TNCs and its failure to promote egalitarian development. These scholars, and others in Mexico, often pushed for socialist models free of TNC participation.

Promoters of free trade instead decried ISI’s protective measures, arguing that they created distortions in capital appropriation and prevented developing countries from pursuing their comparative advantage in international trade. New, protected industries and government planning were deemed inefficient in comparison with those encouraged through market-led development strategies. These critiques, supported in part by early observations of export-led growth in East Asia, produced a strong emphasis by economic and development agencies on export promotion beginning in the 1960s.

A third perspective highlights the relevance of national social and political histories to the success, or lack thereof, of ISI strategies. The ability of the government to learn and adapt production strategies to local conditions depended highly on the character of local institutions and social organization. Also, even though the producers of consumer goods may have been initially successful, they had little incentive to support industrial expansion, because this would require protection of those industries on which they relied for their production tools, thus potentially limiting their supply of high-quality inputs. In addition, the opportunities available to expand domestic production into new industries were limited by the lack of support by TNCs for domestic technological development, compounded by low levels of technical training in the domestic population. In each country, the opportunity to expand industrial production often depended on variations in these social and political constraints.

These critiques raise important questions about development strategies and the role of the state in the 21st century. Although ISI policies are seen not to have accomplished their developmental goals, market-led and export-driven growth have also been criticized. In the context of international trade and with some recognition of a role for the state in development, the way for national governments to pursue development remains a critical if unanswered question.

Q14) What do you mean by Economic reforms?

A14) Economic reforms refer to the fundamental changes that were launched in 1991 with the plan of liberalising the economy and quickening its rate of economic growth. The Narasimha Rao Government, in 1991, started the economic reforms in order to rebuild internal and external faith in the Indian economy.

The reforms intended at bringing in larger cooperation of the private sector in the growth method of the Indian economy. Policy changes were proposed with regard to technology up-gradation, industrial licensing, removal of restrictions on the private sector, foreign investments, and foreign trade. The essential features of the economic reforms are – Liberalisation, Privatisation, and Globalisation, commonly known as LPG.

In other words, ‘“economic reforms’” normally indicate deregulation or at times, decrease in the size of government, to eliminate deformities caused by the management or the presence of administration, rather than current or raised regulations or government plans to lessen the perversions created by market failure.

Need for Economic Reforms

• Poor performance of the industrial sector
• Adverse balance of payments
• Rise in fiscal deficit
• Inflation
• The Gulf War

Examples of Economic Reforms

• Liberalisation
• Privatisation
• Globalisation

Q15) Why were Economic reforms introduced in India?

A15) Economic reforms were introduced in India because of the following reasons:

Poor performance of the public sector

• Public sector was given an important role in development policies during 1951–1990.
• However, the performance of the majority of public enterprises was disappointing.
• They were incurring huge losses because of inefficient management.

Adverse BOP or imports exceed exports

• Imports grew at a very high rate without matching the growth of exports.
• Government could not restrict imports even after imposing heavy tariffs and fixing quotas.
• On the other hand, exports were very less due to the low quality and high prices of our goods as compared to that of foreign goods.

Fall in foreign exchange reserves

• Foreign exchange (foreign currencies) reserves, which the government generally maintains to import petrol and other important items, dropped to the levels that were not sufficient for even a fortnight.
• The government was not able to repay its borrowings from abroad.

Huge debts on government

• Government expenditure on various developmental works was more than its revenue from taxation.
• As a result, the government borrowed money from banks, public and international financial institutions like the IMF, etc.

Inflationary pressure

• There was a consistent rise in the general price level of essential goods in the economy.
• To control inflation, a new set of policies were required.

Q16) What is Liberalisation?

A16) Liberalisation is the process or means of the elimination of control of the state over economic activities. It provides a greater autonomy to the business enterprises in decision-making and eliminates government interference.

Liberalisation was begun to put an end to these limitations, and open multiple areas of the economy. Though some liberalisation proposals were prefaced in the 1980s in areas of export-import policy, technology up-gradation, fiscal policy, and foreign investment, industrial licensing, and economic reform policies launched in 1991 were more general. There are a few significant areas, namely, the financial sector, industrial sector, foreign exchange markets, tax reforms, and investment and trade sectors that gained recognition in and after 1991.

The basic aim of liberalization was to put an end to those restrictions which became hindrances in the development and growth of the nation. The loosening of government control in a country and when private sector companies’ start working without or with fewer restrictions and government allow private players to expand for the growth of the country depicts liberalization in a country.

Q17) Explain the Economic reforms during Liberalization.

A17) Many sectors were impacted during the course of Liberalization. They were:

• Industrial Sector Reforms
• Financial Sector Reforms
• Tax Reforms / Fiscal Reforms
• Foreign Exchange Reforms / External Sector Reforms

1. Industrial Sector Reforms

A number of reformative steps were taken to deregulate the industrial sector. Like,

I. Abolition of Industrial Licensing

The government abolished the licensing requirements of all industries, except for five industries, which are:

• Liquor
• Cigarettes
• Defence equipment
• Industrial Explosives
• Dangerous Chemicals, drugs, and pharmaceuticals

II.  Contraction of Public Sector

A number of public sector industries which were earlier reserved under governmental control reduced from 17 to 8 in the count. Presently these companies are only 3 in number. Public sector undertaking controls in the sectors mentioned below –

• Railways
• Atomic Energy
• Defence

III. De-reservation of Production Areas

The productions areas which were earlier reserved for Small Scale Industries were de-reserved to all. This improved the land efficiency and developed more cultivation area across the country. Farmers were earlier restricted to use area owned by them. Later during privatization, many private sector organizations entered into the sector of farming. Liberalization technically increased the production per hectare and supported the growth of the nation.

IV. Expansion of Production Capacity

The producers were voluntarily allowed to expand their production capacity according to the nature of the market. They were allowed to choose their own crop or product. On the study of the market conditions related to demand and supply the producers were allowed to choose the size of land under cultivation for each crop and had a liberty to plan their production either for the domestic market or international markets.

Other products which had acceptability in international markets were allowed to manufacture. Exports were allowed for all types of crops. Import of latest technology was encouraged to develop more skills in agriculture.

V. Freedom to Import Capital Goods

To upgrade and adopt technology which is more advanced as compared to existing technology, the business houses, and production units were allowed to import capital goods from advanced countries. This helped in increasing the per-acreage cultivation across the country. Farmers and producers of other products were allowed to exchange the technological up gradation.

2. Financial Sector Reforms

Financial Sector includes various financial institutes like Commercial Banks, investment banks, stock exchange operators and foreign exchange dealers.

Following reforms were enforced and initiated in above mentioned financial institutes:

I. Reducing various ratios

• Statutory Liquidity Ratio (SLR) was lowered from 38.5% to 25%.
• Cash Reserve Ratio (CRR) was lowered from 15% to 4.1%.

II. Competition from new private banks

• The banking sector emerged in the private sector and many players grabbed the opportunity to compete with public sector banks.
• This led to the creation of positive competition and expansion of the service sector for the consumers.

III. Change in the role of RBI

The ace bank of the country i.e. The Reserve Bank of India became a “facilitator”. Earlier RBI was the regulator of the financial activities in the country.

IV. De-regulation on interest rates

Banks were allowed to set their own interest rates on all business and commercial borrowings. But for saving bank deposits, the control was with the central government.

3. Tax Reforms / Fiscal Reforms

Fiscal Reforms are the policies set for the government’s taxation and public expenditure policies. All macroeconomic related issues are part of fiscal policies designed by the central government. Prior policy simplified the tax structure and taxation rates were dropped and reduced for convenience of the taxpayers.

This increased the tax revenue for the government and reduced all tax evasion strategies which taxpayers used to follow to skip tax liability. As the tax revenue and other revenues increased for the government, correspondingly government started developing all the areas which were either underdeveloped or undeveloped.

4. Foreign Exchange Reforms / External Sector Reforms

All foreign exchange policies and foreign trade policies were covered in external sector reforms. These were developed to increase international trade between countries. Various reforms were initiated in this sector to develop the foreign exchange reserves. Some of the reforms were:

I. Devaluation of Rupee

The value of the rupee was deliberately devalued to encourage exports and discourage imports. In 1991, to increase foreign exchange reserves, exports were promoted and all relevant benefits were provided to exporters.

II. Other Measures-

• The quota system was abolished. Especially on imports
• All import related policies were trashed
• Duties on various imported goods were reduced
• All export duties were withdrawn

Q18) Explain the impact of Liberalization.

A18) Positive Impact of Liberalisation in India

Free flow of capital: Liberalisation has enhanced the flow of capital by making it affordable for the businesses to reach the capital from investors and take a profitable project.

Diversity for investors: The investors will be benefitted by investing a portion of their business into a diversifying asset class.

Impact on agriculture: In this area, the cropping designs have experienced a huge change, but the impact of liberalisation cannot be accurately measured. Government’s restrictions and interventions can be seen from the production to the distribution of the crops.

Negative Impact of Liberalisation in India

The weakening of the economy: An enormous restoration of the political power and economic power will lead to weakening the entire Indian economy.

Technological impact: Fast development in technology allows many small-scale industries and other businesses in India to either adjust to changes or shut their businesses.

Mergers and acquisitions: Here, the small businesses merge with the big companies. Therefore, the employees of the small companies may need to enhance their skills and become technologically advanced.[1] This enhancing of skills and the time it might take, may lead to non-productivity and can be a burden to the company’s capital.

Q19) What are the Objectives of Liberalization Policy?

A19) The Objectives of Liberalization Policy are-

• To increase competition amongst domestic industries.
• To encourage foreign trade with other countries with regulated imports and exports.
• Enhancement of foreign capital and technology.
• To expand global market frontiers of the country.
• To diminish the debt burden of the country.

Q20) Explain Liberalisation in India.

A20) Since the adoption of the New Economic Strategy in 1991, there has been a drastic change in the Indian economy. With the arrival of liberalisation, the government has regulated the private sector organisations to conduct business transactions with fewer restrictions.

For the developing countries, liberalisation has opened economic borders to foreign companies and investments. Earlier, the investors had to encounter difficulties to enter countries with many barriers.

These barriers included tax laws, foreign investment restrictions, accounting regulations, and legal issues. Economic liberalisation reduced all these obstacles and waived a few restrictions over the control of the economy to the private sector.